Big Lots (NYSE: BIG), 99 Cents Only Stores (NYSE:NDN) Most Likely LBO Candidates Says Barclays

With the attention of private equity seeming to be focused on the small retail sector lately, Barclays took a look at companies left that could fit the profile of a probable candidate, and feel Big Lots (NYSE:BIG) and 99 Cents Only Stores (NYSE:NDN) are among the few that warrant a real chance of being taken over and going private.

Barclays said, "Private equity interest in retail companies appears to have increased recently, with the just completed LBO of Gymboree (Nasdaq:GYMB) and pending LBOs of J. Crew (NYSE:JCG) and of Jo-Ann Stores (NYSE:JAS). These transactions have focused investors' attention on other retailers that could potentially be taken private. We, too, have reviewed our universe of retailers - specifically the small-box discounters - to determine whether any of them would be suitable LBO candidates. We believe some of the key criteria for a successful LBO include valuation, the outlook for free cash flow generation, ownership structure, and size. Based on our analysis, Big Lots (BIG) is the only one of the five small-box discounters we cover that fits these criteria. It has strong free cash flow, expansion potential, broad ownership, and a low valuation. Also, its enterprise value of $2.4 billion means the required debt and equity financing are likely to be readily available."

"All the stocks we reviewed have strong and growing free cash flow, but Dollar Tree (Nasdaq:DLTR) and Family Dollar (NYSE:FDO) both have valuations that are high enough to limit private equity returns. Dollar General (NYSE:DG) is not only valued at a similar level to DLTR and FDO, but its shares are still majority owned by private equity investors following its 2007 LBO. 99 Cents Only Stores (NDN) is more reasonably valued and an ideal size."

Big Lots closed Thursday at $32.09, gaining $0.41, or 1.29 percent. 99 Cents Only closed at $15.20, losing $0.26, or 1.68 percent.

BJ's (NYSE:BJ) Still Moving Up on Jo-Ann Stores (NYSE:JAS) Bid, Rumors

Expectations there could be a competing bid form Leonard Green for
BJ's Wholesale Club (NYSE:BJ) after Jo-Ann Stores (NYSE:JAS) bid, continues to push the share price of BJ's up, as they've gained over 9 percent in the last couple of trading sessions.

BJ's was trading at about $42 a share in November on initial rumors someone was interested in acquiring them, and have continued to gradually move up after the Jo-Ann bid.

Analysts watching the story believe if there is another bid it would come in at about $55 a share.

BJ's closed Thursday at $48.55, gaining $0.93, or 1.95 percent. Jo-Ann closed at $60.18, down $0.04, or 0.07 percent.

Jo-Ann Stores (NYSE:JAS) Sold to Leonard Green & Partners

Shares of Jo-Ann Stores (NYSE:JAS) are soaring today on the news Leonard Green & Partners has acquired the company.

The acquisition price was $1.6 billion, or $61 a share; a premium of 34 percent over Wednesday's close of $45.63.

Todd Purdy of Leonard Green & Partners said, “Jo-Ann Stores is a clear leader in the fabric and craft retail industry. We are excited to partner with Jo-Ann Stores’ talented management team and look forward to the next phase of the company’s growth."

The Board of Directors of Jo-Ann have unanimously approved of the deal, and has set a date of February 14, 2011 for alternative offers.

The deal is expected to close in the first half of 2011, assuming shareholder approval.

Jo-Ann was trading at $60.25, up $14.62, or 32.04 percent, as of 12:35 PM EST.

Jo-Ann Stores (NYSE:JAS) Has EPS Estimate Lowered by Wedbush

Wedbush has lowered their EPS estimate on Jo-Ann Stores (NYSE:JAS), although they've maintained their "Outperform" rating on them.

"We believe there is strong visibility for near- and long-term earnings power driven by strong internal execution and favorable external factors. Comp momentum should remain strong despite the challenging environment due to strong internal execution, including benefits from remodels and optimizations, fresh product, and improved forecasting and replenishment," said Wedbush.

Wedbush is lowering their fourth quarter EPS estimate from $1.58 to $1.54 and their full year 2012 estimate from $4.00 to $3.80.

Most of the concerns are only short term and based on capex on remodeling and opening new stores.

Wedbush maintains an "Outperform" rating on Jo-Ann Stores, which closed Thursday at $45.71, down by $2.47, or 5.13 percent. They also lowered their price target on them from $56 to $55.